No, we’re not talking about 4G phones, nor God, gold, guns and grub.
Today let’s look at GE, Greece, and finish with a very interesting Germany
and Gazprom. Last week GE shocked the market place by announcing
they will sell their crown jewel GE Capital. Why would they do
this? Isn’t GE capital their growth engine? Isn’t it their cash
cow? What could they possibly be thinking? In my opinion they are
“thinking” correctly, maybe a bit too late though.
The plan is to offload the finance division and pay a very large cash
dividend to shareholders. In my opinion they are calling “top” to the
entire paper bubble now enveloping the world. Maybe some sanity circulated
the halls of their Fairfield Ct. home office and they decided the stone has
no more blood to be squeezed? Think about the macro situation, can
interest rates go any lower from here? What will happen to their “book”
when interest rates start to rise? What about their derivatives
book? I believe it is possible someone looked at this and figured out
either they will be defaulted on or they themselves cannot perform somewhere?
In any case, the decision to “sell” was made. There are generally
very few reasons to sell, far fewer than there are when deciding to buy
something. Sometimes the decision to sell is “forced” by a margin call
or other situations where there is no choice. For the most part, when a
decision is made to sell something it is to profit or redeploy the capital
elsewhere. In this case the decision is to pay a large dividend and
reinvest part back into their other businesses. This will be looked
at in retrospect as the final top to the market, I just wonder whether
or not they will get to employ this strategy before the market falls apart
and spoiling their plans? We will see.
We’ve spoken so much about Greece lately, I don’t want to be long winded
here. Greece made their 460 million euro payment last week and were
promptly “re” funded 1.3 billion euros via previously pledged funds fro
ELA. The important thing this past week in my mind was the change of
“tone”. Mr. Varoufakis spoke of next month being “different” and Mr.
Tsipras seemed to speak more boldly. One must wonder what exactly was
discussed behind the closed doors with Mr. Putin? What did Russia offer
if anything? You can bet a pipeline deal was discussed, I would also
bet that Greece’s “vote” was discussed. The sanctions which
Russia now operates under are set to expire in June. They cannot be
extended with Greece voting to make it unanimous. Will Greece leave or
even be kicked out of the Eurozone? The other interesting points were
the strength of tone used regarding WWII reparations from Germany and the
“status” of debt incurred since 2012 which they now term “odious”.
Little Greece is becoming more than a thorn in the side of the West.
The main topic for today is Germany and Russian
energy giant Gazprom. Germany has apparently just ordered 100 Leopard 2
tanks “to ensure their troops are ready for action in response to Russian
assertiveness”. I have to wonder whether the addition of 100 tanks (a
giant leap of a 45% increase) is really worth it considering the “signal” it
sends. Germany gets roughly 30% of their natural gas from Russia, do
they really want to flex more muscle with such a large supplier of theirs?
I also wonder what the industrialists are thinking should this sour
relations?
Coincidentally, Russian energy giant Gazprom
announced they will sell their 10.52% minority stake in German gas
supplier Verbundntz gas (VNG). Gazprom’s position when aligned with
a 15.7% stake held by Wintershall served as a blocking position.
With the stake’s power diminished, Gazprom has decided to
sell. The decision was also made last year to discontinue plans for the
South Stream gas pipeline in favor of a route through Turkey …and thus
ultimately Greece
Please understand the significance of this chess strategy. Turkey is
a member of NATO, Greece is a member of the European Union. Doing
business with either (or both) puts a potential wedge in NATO’s
unison and a “veto power” in the EU when it comes to renewing
sanctions. Has Mr. Putin and Russia put themselves in this position
purposely or is it just business? In my opinion Russia is simply taking
the path of least resistance here which also has the “benefits” attached that
come with both Turkey and Greece.
The real head scratcher in all of this is Germany. If you recall,
they have been repatriating their gold from the New York Fed’s custody over
the last two+ years. It was said they had “total trust” in the Fed but
no longer had a need to store the gold outside of their country …and
the reaches of the big bad Russians. Now they order more tanks
because of the Russian perceived threat. Will they continue to
repatriate gold or will they stop and use the Russian threat as their
reasoning?
Another area where Germany is in a sticky spot is with Greece. Will
they continue to push austerity (which is actually senseless because Greece
already owes too much)? How will Germany handle Greece’s demands for
WWII reparation? Will they push for a Greek exit from the EU? And
of course one must wonder about the pipeline that will most likely go from
Turkey towards Germany and Eastern Europe, now they have to wonder about the
continuation of Russia selling them the gas and then the transmission through
Greece.
Germany now has pressure from so many different directions you almost have
to feel sorry for them. If I had to guess, it would not be surprising
to see Germany pivot away from the U.S. and toward Russia and the
Chinese. This would only make sense as historically Germany and Russia
have been very big trading partners and live in the same neighborhood to
boot. We may see a hint of what is to come as we approach June,
remember, the current sanctions on Russia will run out and need to be renewed
to continue. Who does what and when, will be very interesting
indeed!
Regards, Bill Holter
P.S. late breaking icing to this cake, Germany’s banks brace for 50% writedowns
(losses) from Austrian bank HETA
…and Greece is preparing for an exit from the
Eurozone
